Showcase Report

The Immigrant Pay Gap in Australia: Two Opposing Forces

Why overseas-born workers earn less within each education level, despite being more qualified overall

Published: June 2026 Author: Verosynthea Research Source: ABS Census 2021 + Bayesian reconstruction

Key Findings

Overseas-born workers are actually 5.8pp more likely to earn above the median — but this masks two opposing forces
Through education, overseas-born workers gain 10.0pp — they hold higher qualifications on average
Within the same education level, overseas-born workers face a 4.2pp penalty — the credentials gap
Based on 23,970,401 observations from ABS Census 2021 (all working-age Australians)

Overview

This analysis is part of Verosynthea AUSynth — census-grade Australian population data, privacy-safe by design.

What is mediation analysis? Mediation analysis separates an effect into two paths: the indirect effect (operating through the mediator) and the direct effect (everything else). Imagine you discover that students from a particular school earn less after graduation. Why? Two paths: INDIRECT: the school offers fewer advanced subjects, so students get lower qualifications, which leads to lower pay. The school's effect on income operates through education. DIRECT: employers hold biases against the school, so even graduates with the same qualifications earn less. The school's effect on income remains after accounting for education.

How To Read The Effects

Total Effect

What it is: The overall difference in outcome between the two groups
How to read it: A positive value means the comparison group is more likely to achieve the outcome; negative means less likely. Measured in percentage points (pp)

Indirect Effect (ACME)

What it is: The part of the total effect that operates through the mediator
How to read it: If large relative to the total, the mediator is a major pathway. If small, the mediator is not the main story

Direct Effect (ADE)

What it is: Everything that remains after accounting for the mediator
How to read it: A large direct effect means the mediator doesn't explain the relationship; other mechanisms are at work

Proportion Mediated

What it is: What share of the total effect flows through the mediator
How to read it: Higher means the mediator explains more. Shown as n/a when effects pull in opposite directions

Results

Comparison: Overseas-born vs Australian-born (Oceania) (reference).
Outcome: Earning above $800-$999 ($41,600-$51,999) per week.
Income threshold: $800-$999 ($41,600-$51,999) (national median bracket). Based on 23,970,401 observations.

What Your Data Shows

Overseas-born workers in this area are 5.8 percentage points MORE likely to earn above the median income than Australian-born workers -- but this headline hides two opposing realities.

Migrants to Australia are more qualified, on average, than people born here -- Australia's skilled migration system selects for it. Because of their qualifications alone, overseas-born workers SHOULD be earning more by 10.0 percentage points. But once you compare like with like -- overseas-born and Australian-born workers with the SAME level of education -- overseas-born workers earn LESS by 4.2 percentage points. Their qualifications aren't being rewarded equally.

What looks like a small advantage for migrants is actually two stronger forces partially cancelling each other out. Migrants are over-qualified for the jobs they hold, or their overseas qualifications and experience aren't valued as much as domestic ones. Where the gap actually sits: not in migrant qualifications (those are strong), but in how foreign credentials, overseas work experience, and professional networks are valued by Australian employers. Patterns like this typically shift through skills recognition, credential bridging, and changes in employer practice -- not through migrant education, which is already the strongest part of the picture.

Why opposite-direction effects matter

Imagine students from one school earn less than students from other schools after graduation. Two pathways might explain this:

The school may not offer advanced subjects, so students end up with lower qualifications. Less qualified students earn less. (the indirect path)
Even with the same qualifications, employers may pay these students less due to perceived school reputation. (the direct path)

If the school happened to provide BETTER preparation (positive indirect) while employers held biases against graduates (negative direct), the two would partially cancel. The total visible pay gap could look small, but it would mask two strong opposing forces.

Your data above shows this pattern. The small visible gap masks substantial underlying inequality.